How Long Does it Take to Reach FI?

To achieve Financial Independence, you will have to spend less than you earn, then save and invest the difference. Eventually, compounding returns will grow your wealth to a point where the continued growth outpaces your life's expenses. At its heart, a simple plan.

However, it's easier said than done. Compounding returns are such a powerful ally that even a little invested savings can eventually get you there, but compounding requires time and often we live in the now. The money you meant to save can all too easily become the money you spent without intention. It helps to have a plan, to know what you are working towards. To be able to see the road ahead so you know where you are going.

I created the FI Calculator for this purpose. The calculator uses a handful of inputs and simplifying assumptions to give you an idea of how long it will take to reach Financial Independence. You can also access the FI Calculator from the navigation bar at the top of the blog. Put your numbers in and see how your road looks. Let me know in the comments what you discover!

Comments

Intentional Spending

Your spending is an important factor in your financial independence journey. It effects the rate at which you can save and invest while in the accumulation phase and is also a critical factor in calculating your Target FI Number. When accumulating wealth, the amount you can save and invest is a simple calculation: what you make minus what you spend. Like many of the levers we talk about, your spending has a non-liner effect on your FI journey. Spending slightly less also means saving slightly more and both of those quantities are found in the formula for Stash Rate , leading to a multiplied effect. $$ Stash Rate = {Annual\ Savings \over Annual\ Expenses} $$ As we saw in the Stash Rate article, decreasing expenses leads to an exponentially increasing rate of wealth building. On the other side of financial independence, the level of spending in your drawdown phase directly determines your Target FI Number. $$ Target\ ...

Thrifty Thursday - Hack your Housing

Housing is an expense we all must deal with which can add up to a large portion of our income. The US the Bureau of Labor Statistics last survey on Consumer Expenditure found housing to be the largest category for the average American at 33% of their spending. The Pareto Principle would tell us this is an area ripe for action. What are some ways we can reduce the amount we spend on housing? Live at home for as long as you can. Living with your parents is becoming a frequent stepping stone for college graduates. Outside of America, multigenerational households are already much more common. Not only is it more efficient to combine more family members under one roof, but younger generations living rent free is a great tax-free wealth transfer tool! Don’t forget about grandparents or close aunts and uncles living in areas you would like to work. Chose a low cost of living area. Include the cost of living in your calculat...

Thrifty Thursday - Upgrade to LED Bulbs

Here’s a hack with a high percentage return. If you pay your own electricity bill, chances are your use is metered and charged by the Kilowatt hour (kWh) . A Watt (W) is measure of power, or energy per second, so a Kilowatt hour is just using 1,000 Watts of power for one hour. For example, a common household incandescent light bulb uses 60W of power. If you left this light bulb on for 3 hours a day for a year, it would use 65.7 Kilowatt hours: $$Total\ Energy = Power * Time$$ $$Total\ Energy = 60 W * {3\ h \over day} * {365\ days \over year}$$ $$Total\ Energy = {65,700\ Wh \over year} = {65.7 kWh \over year}$$ Since Thomas Edison invented the incandescent bulb in 1879, however, there have been some improvements to the technology. The latest is the LED Light Emitting Diode bulb. An LED bulb can create the same amount of light Typically measured in lumens. as an old incandescent light bulb using much less power. For example, an L...

Exponential FI

Search This Blog